Audit Sampling for Tests of Controls and



SEQ CHAPTER \h \r 1Chapter 15Audit Sampling for Tests of Controls andSubstantive Tests of Transactions15-24a.(4)b.(3)c.(2)15-27(see text Web site for Excel solution for part a.- Filename P1527.xls)a.SAMPLING UNITNUMBERING SYSTEMFOR THE POPULATIONEXCEL SELECTIONFORMULASales invoiceAll invoices numbered 0001 to 8274=RANDBETWEEN(1,8274)Bill of ladingAll bills of lading numbered 18221 through 29427 =RANDBETWEEN(18221, 29427)CustomerA pair of random numbers, where the first random number is the page number (1–20), and the second random number is the line number on the page (1–50)=RANDBETWEEN(1,20)and=RANDBETWEEN(1,50)15-27 (continued)An example random sampling plan prepared in Excel (P1527.xls) is available on the text Web site. The command for selecting the random number can be entered directly onto the spreadsheet, or can be selected from the formulas tab (math & trig). It may be necessary to add the analysis tool pack to access the RANDBETWEEN function. Once the formula is entered, it can be copied down to select additional random numbers. When a pair of random numbers is required, the formula for the first random number can be entered in the first column, and the formula for the second random number can be entered in the second column.b.First five numbers using systematic selection:SAMPLING UNITINTERVALRANDOMSTARTINGPOINTFIRST 5SAMPLEITEMSSales invoice110 (8274/75)3939149259369479Bill of lading149 [(29427-18221) = 11206/75]182591825918408185571870618855Customer13 (979 lines/75)Page 1, line #11PageLine111124137150213Using systematic selection, the definition of the sampling unit for determining the selection interval for population 3 is the total number of lines in the population. The length of the interval is rounded down to ensure that all line numbers selected are within the defined population.15-32a.The sample sizes and CUERs are shown in the following table:and b.ACTUAL SAMPLE SIZEINITIAL SAMPLE SIZE FROM TABLE 15-8SERCUER FROM TABLE 15-9TER11001272.0%6.2%6.0%2100934.09.05.0320185.018.120.04100990.03.03.0560651.76.48.06606013.320.815.0a.The auditor selected a sample size smaller than that determined from the tables in populations 1 and 5. The effect of selecting a smaller sample size than the initial sample size required from the 15-32 (continued)table is the increased likelihood of having the CUER exceed the TER. If a larger sample size is selected, the result may be a sample size larger than needed to satisfy TER. That results in excess audit cost. Ultimately, however, the comparison of CUER to TER determines whether the sample size was too large or too small.b.The SER and CUER are shown in columns 4 and 5 in the table on the preceding page.c.The population results are unacceptable for populations 1, 2, and 6. In each of those cases, the CUER exceeds TER.The auditor’s options are to change TER or ARO, increase sample size, or perform other substantive tests to determine whether there are actually material misstatements in the population. An increase in sample size may be worthwhile in population 1 because the CUER exceeds TER by only a small amount. Increasing sample size would not likely result in improved results for either population 2 or 6 because the CUER exceeds TER by a large amount.d.Analysis of exceptions is necessary even when the population is acceptable because the auditor wants to determine the nature and cause of all exceptions. If, for example, the auditor determines that a misstatement was intentional, additional action would be required even if the CUER were less than TER.e.TERMNATURE OF TERM1.Estimated population exception rateNonstatistical estimate made by auditor2.Tolerable exception rateAudit decision3.Acceptable risk of overrelianceAudit decision4.Actual sample sizeAudit decision (determined by other audit decisions)5.Actual number of exceptions in the sampleSample result6.Sample exception rateSample puted upper exception rateStatistical conclusion about the population15-35a.ATTRIBUTEMISSING ELEMENT1CUER is 9.2%2Initial sample size is 773Tolerable exception rate is 7%4The actual number of exceptions in the sample was 15ARO is 5%6Sample size is 70b.The sample results are unacceptable for Attributes 1 and 6 because CUER exceeds TER for those attributes.c.Attribute 1 has a lower ARO, which normally would lead to a large sample size. TER-EPER is 6% for both attribute 1 and attribute 3. The sample size for attribute 1 is smaller than the sample size for attribute 3 because the estimated population exception rate is 0% for attribute 1 but 1% for attribute 3. Because there is no expectation of errors in the population, the sample size is smaller for attribute 1. d.The CUER is smaller for attribute 2 relative to attribute 5 because ARO is higher in attribute 2 relative to attribute 5, which means the auditor has a greater willingness to accept the risk that the assessment of control risk is too low for attribute 2. ................
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